3 Important Pre-Launch Investor Ideas

In this article we tackle the seemingly impossible problem of attracting money before you have much of anything to support your request. These funding rounds are called “seed,” “pre-seed,” “pre-launch,” or any number of other terms, depending on who you talk to. Those providing the funding don’t necessarily have to be professional investors; here are three non-professional investor options for funding your startup.

1. Everyone is a Potential Investor

•     Start by reaching out to your personal network. Many entrepreneurs instinctively start here, and for good reason; chances are you’ll find someone willing to provide at least some funding. Personally, I’ve always avoided this source because, although I believe in my idea, I know how risky startups are and may not want to expose friends or close colleagues to that risk. Use your best judgment regarding who you pitch and how much you ask for.

•     Regardless of whom you ask, always have a “growth mindset” around funding. With every “no,” ask why, and take that feedback into consideration in your next pitch.

•     You may also consider a securities offering via crowdfunding, thanks to the new crowdfunding legislation which help startups raise capital while providing investors with additional protections. Now, crowdfunding portals allow you to register your business and raise a funding round very early on.

2. Make Sure Your Team Is Ready

Without a fully-formed product or service yet in place, team experience, credentials and references such as university contacts or past employers can instill investor confidence early on. Even if your idea for that product or service is astoundingly good, it’s your team that counts — investors often value a good team over a good idea. And if your idea is so good that your market validation is off the charts (i.e., you hit the next big thing at the right time), your team needs to be able to convince investors that they can execute today. It always comes back to execution.

3. Consider Bootstrapping Your Business

Bootstrapping begins with raising a minimum amount of startup capital, typically from a salary, to build a skeletal framework which is used to close your first customers or “anchor clients.” Personally, this has been my favorite approach, but there are loads of limitations. For example, it’s not very useful if your business requires a lot of capital and you don’t have that kind of money, or if your business does not generate money quickly. But it is great in that it forces you to consider your entire business from the get-go.

This is just a starting point, of course. But if you’re just getting off the ground, we’re always open to discussing more. Contact us and let’s talk about what can be done to attract new investment.

Investing in a Side Business From Your Salary: 6 Things to Consider

Every business has some level of risk associated with it. The market rewards risk; if it didn’t, then everyone would start his or her own business and the subsequent rewards would be diluted. Sometimes we need to mitigate risk, however, by continuing to work a “day job” while we grind away at our side gig or side business.

This can be tricky, because that side business could easily be our main source of income in the future. But it can also drain a large chunk of our savings and/or salary in the present, and possibly never turn a profit (like most businesses). So here’s what first-time business owners should consider regarding how to fund their side gig.

1. Do not dip into your retirement savings.

Yes, I began with a “don’t.” But this is crucial. Yes, it may pan out. But let’s deal with probability, not possibility. CAN this be the best decision of your life? Sure. WILL it be the best financial decision of your life? Statistically speaking, probably not, given how many businesses ever actually turn a profit, especially in their early years. So hands off retirement savings, or any other irreplaceable savings.

2. Manage your initial debt.

Most likely this will be personally secured debt, so don’t take on more than you can comfortably pay back on your current salary. You decide what that is, but without knowing the details of your business, I would recommend it be recoverable in one year under your current net income, as a rule.

3. Consider using a fraction of your salary.

Simply calculate how much you can spare out of each paycheck and use that. If you need a larger initial investment, e.g., for product development or a prototype, start saving a few months before your pre-launch activity. This budget discipline is also useful in vetting your idea, organizing your business, and not spending that money on yourself.

4. Don’t jeopardize your current salary with your startup work.

That’s much easier said than done, because working on your startup is probably a lot more fun than your job, but it’s important. Your startup has a better chance of surviving if it has funds coming in.

5. Spend “close” to your customer.

In other words, while it’s tempting to spend on “Phase 2” or the next cycle, it’s generally safer to concentrate on spending your dollars where they will have the most impact on your customers and prospects. This helps you spend less initially and focuses you on customer success and your marketing and sales pipelines.

6. Niche your side-hustle.

If your small business lacks the funds to build an elaborate marketing and sales pipeline, consider a “niche.” Focus on a particular customer and a particular service or product, and pivot that niche if your data and experience lead you elsewhere. But beware of dilution; typically, multi-service/product marketing and sales pipelines are expensive to get right on a side gig’s budget.

These considerations are just the tip of the iceberg with regard to financing your side gig, but I hope they are useful. If you need assistance, don’t hesitate to reach out and let us know. Maximize the return on your startup investment; give us a call to discuss how.